Embassy REIT Sees Delay in Leasing Decisions on Virus Surge

(Bloomberg) -- Blackstone Group Inc.-backed Embassy Office Parks REIT sees new leasing decisions for commercial offices getting delayed as India faces a raging second wave of Covid-19 infections, Chief Executive Officer Michael Holland said in a post-earnings interview.

“There were good signs of recovery in early part of the year, so it is disappointing that we got this second wave,” Holland said. “We have got a good pipeline of conversations, but of course at this moment, everyone is focused on safety. We will see slowdown in leasing over the next few months.”

India is battling a record jump in infections and deaths - it added 386,452 daily cases as of Friday morning and total deaths rose to 208,330. Several states across the country have been forced to announce lockdowns or restrictions on movement of people, including in the capital New Delhi and financial hub Mumbai. The surging pandemic could delay economic activity from returning to normal, Reserve Bank of India Governor Shaktikanta Das said.

“I see the decision on smaller sub-50,000 square feet deals getting paused for now, but I am confident they will pick up in couple of quarters,” Holland said. “The larger deals of more than 100,000 square feet which typically are decided over many quarters will continue to be discussed.”

Since the pandemic started, new leasing deals have slowed down as companies paused or delayed their decisions to acquire new office space amid a trend to work from home. Embassy saw new leasing drop to 581,000 square feet in the year ended March 2021 from 2.4 million square feet in the previous financial year.

Despite slower leasing, the trust’s existing portfolio, which comprises of clients from multinational technology companies and financial institutions, continues to show robust performance.

“89% of our properties are occupied in long-term leases, that income continues to flow,” Holland said. “We collected 99% of the rentals across the last fiscal. That gives us a resilience to weather this kind of storm.”

The REIT’s net operating income rose 12% to 20.32 billion rupees ($274 million) last financial year. The units of Embassy REIT were trading at 316.55 rupees, 1.5% higher, at 10.32 a.m. on Indian bourses.

In the medium term, Holland sees a strong recovery in the Indian office market on the back of robust demand from global technology companies.

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